Tax filing has become simpler and more convenient than the
com plicated process it used to be a few years ago. Yet, a lot of taxpayers
find it difficult to file their returns and outsource the entire process to a
tax professional. That's surprising because some of the private e-filing
portals handhold the taxpayer through the entire process, and even offer
guidance if you cannot find your way. Our cover story this week is meant to
empower the reader to file his tax return himself. We have broken down the
process into five steps. You start with checking your tax credit statement and reconciling
it with the tax you have paid during the year. Next, you choose the correct
form for filing your return. The choice of the form will depend on the type of
income you have. Admittedly, this is a tricky area and even the tax experts we
spoke to were divided on where the taxpayer stands.
After this, you have to decide on the mode of filing. While
e-filing is mandatory for those earning more than `5 lakh a year, how you do it
is still your call. We also tell you what to look out for if you file your
return through a private portal.
Lastly, we caution you against the common mistakes that
taxpayers make. Over the next four weeks, millions of Indian taxpayers will
file their returns. Many of them will make mistakes and their returns will
invite notices from the tax department. We hope that after reading our story,
you will be able to file an error-free return.
STEP 01
CHECK YOUR TDS DETAILS
Start by reconciling the tax you have paid and the TDS
details in your Form 26AS.
Before you get down to filing your tax return, you should
check whether the tax you paid during the year has been correctly credited to
you. You can do this by checking your tax credit statement. Also know as the
Form 26AS, it has details of the tax paid by an individual. Any TDS linked to
your PAN or self assessment tax paid by you during the year will reflect in
this form. If you are a salaried taxpayer, you need to match the TDS details in
the Form 16 from your employer with the details in the Form 26AS. If your bank
or bond issuer has deducted tax on the interest income, it would be in this
statement.
You can access the Form 26AS on the Income Tax department's
e-filing portal (https://incometaxindiaefiling.gov.in/). When you click on
“Check tax credit statement“ you will be directed to the relevant page. First
time users will have to register before they can log in and access their tax
credit statement. But there is an easier way if you have a netbanking account.
Just click on your tax credit statement and you will be
directed to the Traces (TDS Reconciliation Analysis and Correction Enabling
System) webpage without the hassles of registration.
If there is a mismatch in the details, you need to bring it
to the notice of the establishment that deducted the tax and get the mistake
rectified. “Tax authorities use Form 26AS as the basis for issuing notices and
refunds.
Therefore, you must verify the details in advance,“ says
Vineet Agarwal, director, KPMG India.
The Form 26AS should serve as a warning for taxpayers who,
deliber ately or otherwise, under-report their income in the tax return. Many
taxpayers wrongly assume that if TDS has been deducted on the interest earned
on fixed deposits and bonds, they don't have to pay any more tax. But TDS on
bank deposits is 10% while the tax may be 30% if the person earns over `10
lakh. If he ignores the income from interest, the tax department will immediately
find out. The TDS will reflect in the Form 26AS but the corresponding income
will not be reported. “The Form 26AS will help a taxpayer identify and report
the sources of income which he might have missed out,“ says Vaibhav Sankla,
director, H&R Block, a tax consultancy firm.
CHOOSE THE RIGHT FORM
Most taxpayers falter at this stage because they don't know
which form is applicable to them. The ambiguity in the rules only adds to the
confusion.
The form to be used for filing your tax return is crucial.
If you choose the wrong option, the return may get rejected. The frequent
changes in rules of tax return filing has not helped matters much. The simple
ITR-1 is the most used tax form, but many assessees may not be using it
correctly. Last year, the Central Board of Direct Taxes had made it mandatory
for taxpayers to use ITR-2 if their exempt income exceeded `5,000 a year.
This rule is open to a lot of interpretations. Going by the
definition, exempt income would include the allowances for house rent, leave
travel, medical and transport. So, most salaried taxpayers would have to use
ITR-2 instead of ITR-1. “This exempt income should mean taxfree maturity
proceeds of life insurance policies, PPF, dividend income and EPF withdrawals
and so on. However, if you were to go strictly by the wordings, you will have
to include the basic allowances that form part of most salaried individuals'
packages,“ says certified financial planner Pankaj Mathpal. Others feel that
exempt income in this context only refers to earnings like dividend and
agricultural incomes and not the allowances from employers.
However, Vaibhav Sankla, director, H&R Block, maintains
that tax department's notification will have to be followed in letter and
spirit. “Last year, many assessees who should have opted for ITR-2 because they
had exempt income of more than `5,000 used ITR-1 for filing their returns.
Though their returns were accepted, the same leeway may not be extended this
year,“ he says. The tax department has not issued any formal clarification on
this matter.
One of the advantages of choosing a private portal is that
it automatically chooses the correct form for you. As you enter the details of
your income and the exemptions claimed, the portal processes your return using
the appropriate form. But, as we will explain later, this convenience comes for
a price.
If you are cost conscious, you can e-file your tax return
for free through the official website. Go for a private portal if you are
seeking convenience. "I will be using a private portal to file my tax
return because the process is very easy."
STEP 03
CHOOSE THE RIGHT MODE
E-filing is mandatory for taxpayers with an income of over
`5 lakh a year. You can do that for free through the official website of the
income tax department, or you can file through a private portal by paying a
small fee. If you opt for the tax department's portal, you will have to
complete the process on your own. It has become simpler this year, with Java
utility being made available, but the filing through a private portal is far
more convenient. This convenience comes for a cost: you pay anything between
`250 and `1,500, depending on the form you use and the type of income you have.
Some portals charge a small fee for scrutinising your returns for mistakes and
ensuring that all deductions have been availed.
STEP 04
NOTE THE CHANGES
The tax forms seek more information on income and expenses
this year.
New tax reliefs: In case of ITR-1, the form now has created
space for claiming deduction under section 80EE that is available to first-time
home buyers. So, if you have obtained a home loan in the period April 1, 2013
to March 31, 2014, you can claim an additional deduction of `1 lakh on the
housing loan interest paid. However, to be eligible for this tax benefit, your
loan amount should be less than `25 lakh and the value of this self-occupied
house should not exceed `40 lakh.
Exempt allowances: You will now have to furnish details of
allowances exempt under section 10. ITR-2 has incorporated fields for providing
information on house rent allowance, leave travel allowance, tax paid by
employer on non-monetary perks and other allowances. Till last year, you only
had to mention the sum total of all such tax-exempt allowances.
Capital gains: You will have to provide detailed information
on capital gains too.
The new form ITR-2 requires you to divide capital gains into
several categories, based on the nature of the capital gains and the asset
sold.
House property: If you sell property after three years, you
can claim deduction on the capital gains by using the amount to buy another
house or investing in bonds issued by the NHAI or REC. In the ITR-2, you will
have to provide details of such deductions claimed on capital gains.
Refunds: The tax department will not send you a cheque
anymore. The refund will be directly credited to your bank account through ECS.
So make sure your bank account and branch code details are correct.
STEP 05
MISTAKES TO AVOID
1 WAIT TILL LAST DAY The earlier you file your return, the
better it is.
E-filing websites tend to get clogged just before the
deadline expires. The refunds also come faster if you file earlier.
2 MISCALCULATING TAX If you changed jobs during the year,
the first company may have deducted tax correctly, but the second might have
deducted very little. Calculate the tax by adding both incomes.
3 IGNORING INTEREST The new Sec 80TTA gives deduction of up
to `10,000 on interest from a savings account. This does not include the interest
earned on bank deposits. That is taxable.
4 NOT SENDING ITR-V E-filing your returns does not complete
the process.
If you didn't use a digital signature, you have to send your
ITR-V by post within 120 days of upload ing the return to the CPC.
5 IGNORING ITR-V INSTRUCTIONS Don't send the ITR-V by
courier. It should be sent by ordinary or speed post.
Also, it should be printed in black and signed in original.
No photocopies.
